India's retail inflation is likely to strengthen over the remainder of FY27 as higher fuel prices, rising input costs, a weaker rupee and weather-related risks to food supplies continue to build price pressures, according to a report by Crisil Ratings. The agency has projected Consumer Price Index (CPI)-based inflation to average 5.1 per cent in FY27, up sharply from 2.0 per cent in the previous financial year, and said persistent inflationary pressures could prompt the Reserve Bank of India (RBI) to raise the policy repo rate by 25 basis points in the second half of the fiscal year.
Retail inflation accelerated to 4.4 per cent in June from 3.9 per cent in May, exceeding the RBI's medium-term target of 4 per cent for the first time since January 2025. The increase was broad-based, with both food and non-food categories contributing to the rise. Food inflation climbed to 5.3 per cent from 4.8 per cent in May, while fuel inflation recorded a sharp sequential increase.
Fuel Costs Rise
According to the report, June was the first month to fully reflect the impact of the cumulative Rs 7.5 per litre increase in petrol and diesel prices announced in mid-May. Fuel and light inflation rose to 4.5 per cent in June from 1.9 per cent in the previous month. Inflation in personal transport fuels increased to 7.6 per cent from 3.1 per cent, while inflation in liquefied petroleum gas (LPG) and piped natural gas doubled to 4.6 per cent following an increase in domestic cooking gas prices.
Crisil Ratings said international crude oil prices are expected to remain elevated during FY27 despite easing from recent highs, averaging between USD 82 and USD 87 per barrel. At the same time, the depreciation of the rupee is increasing imported inflation by making overseas purchases more expensive. The report added that producers are gradually passing on higher energy, freight and raw material costs to consumers, a trend that is expected to lift core inflation over the coming months.
Food Inflation Risks
The report also highlighted weather-related risks, stating that below-normal rainfall under El Niño conditions could affect agricultural output and keep food inflation elevated. However, it noted that timely government intervention could help contain sharp increases in food prices.
Among food categories, inflation remained elevated in meat, milk, fish, fruits, edible oils and ready-made food products, while onion prices returned to inflationary territory during June. In contrast, tomato inflation moderated and potato deflation narrowed. Core inflation remained broadly unchanged at 3.9 per cent, indicating that the pass-through of higher production costs to consumers is continuing at a gradual pace, the report said. |
